F-1/A: Waton Financial Limited Eyes Nasdaq Listing with $25 Million IPO

Waton Financial Limited, a British Virgin Islands holding company operating in Hong Kong, is seeking to raise $25 million through an initial public offering on the Nasdaq Capital Market.

Summary

• Waton Financial Limited, a holding company incorporated in the British Virgin Islands, is planning an initial public offering of 5,000,000 ordinary shares on the Nasdaq Capital Market.
• The expected IPO price is between $4.00 and $6.00 per share, with an assumed midpoint of $5.00, potentially raising $25 million in gross proceeds.
• The company operates primarily through its Hong Kong subsidiaries, Waton Securities International Limited (WSI) and Waton Technology International Limited (WTI), providing securities brokerage and financial technology services.
• WSI is licensed to conduct Type 1, 4, 5, and 9 regulated activities under Hong Kong's Securities and Futures Ordinance (HKSFO).
• A significant portion of the company's revenue is derived from Wealth Guardian Investment Limited (WGI), a related party, accounting for approximately 39.5% and 81.5% of total revenues for the fiscal years ended March 31, 2024 and 2023, respectively.
• The company's total revenues grew by 75.2% from $5.7 million in fiscal year 2023 to $10.1 million in fiscal year 2024.
• Net income was $2.5 million for the fiscal year ended March 31, 2024, compared to $3.1 million for the fiscal year ended March 31, 2023.
• The company intends to use the net proceeds from the IPO to enhance its trading platform, launch its asset management business, expand investment options, and for general working capital purposes.
• Waton Corporation Limited, the company's largest shareholder, will beneficially own approximately 85.0% of the aggregate voting power of the outstanding Ordinary Shares after the offering.

Sentiment

Score: 6

Explanation: The document presents a mixed sentiment. While the company demonstrates revenue growth and strategic plans for the future, there are also significant risks and dependencies on related parties that temper the overall outlook.

Positives

• The company has experienced significant revenue growth, with a 75.2% increase from fiscal year 2023 to fiscal year 2024.
• WSI holds multiple licenses for regulated activities in Hong Kong, indicating regulatory compliance.
• The company has a clear plan for utilizing the IPO proceeds to enhance its business and expand its service offerings.
• WSI has developed Broker Cloud solutions to securities brokers with the combination of software licensing and related support services, securities brokerage services, margin financing services and other related services.

Negatives

• A significant portion of the company's revenue is derived from a single related party customer, WGI, creating a concentration risk.
• The company's net income decreased from $3.1 million in fiscal year 2023 to $2.5 million in fiscal year 2024.
• The company recorded a net loss of approximately US$1.1 million for the six months ended September 30, 2024.
• The company is dependent on a single related party supplier, Shenzhen Jinhui Technology Co., Ltd.

Risks

• The company faces regulatory and legal uncertainties related to the implementation of PRC laws and regulations in Hong Kong.
• The PRC government may intervene or influence the Hong Kong operations of the company's subsidiaries.
• The company may be required to comply with cybersecurity, data privacy, and data protection laws and regulations in the PRC.
• The company's historical growth rates may not be indicative of future growth.
• WSI is subject to extensive and evolving regulatory requirements in Hong Kong, non-compliance with which may result in penalties.
• The company relies on dividends and other distributions from its subsidiaries to fund its cash and financing requirements.
• The company's shareholder has substantial influence over the company, and his interests may not be aligned with the interests of other shareholders.
• The company's Ordinary Shares may be delisted or prohibited from being traded over-the-counter under the HFCAA if the PCAOB is unable to inspect or investigate completely the company's auditor for two consecutive years.

Future Outlook

The company is committed to the digital transformation of financial services in the securities brokerage industry and plans to expand its customer base, enhance existing services, develop its asset management business, and pursue investment and strategic opportunities.

Industry Context

The announcement highlights the company's position as a business-to-business fintech service provider in the Asia-Pacific region, offering brokerage software solutions to small and medium-sized brokers.

Comparison to Industry Standards

• The document states that WSI is a pioneer of business-to-business fintech services in the Asia-Pacific region to offer one-stop brokerage software solutions to small and medium-sized brokers, according to Frost & Sullivan Limited.
• The document states that WSI is able to optimize its development cost structure and lower the average ordinary trading platform APP initial delivery costs to less than HK$100,000 (approximately US$12,821), which is significantly below the estimated industry average of more than HK$1 million (approximately US$128,205), according to Frost & Sullivan.

Legal Proceedings

• As of the date of this prospectus, WSI has been involved in certain inquiries from the HKSFC concerning its practices relating to (i) protection of client assets where WSI failed to deposit client money of RMB 200,000 into a segregated bank account between July 29, 2022 and September 27, 2022, due to staff oversight, and subsequently rectified the non-compliance by depositing the relevant money balance into a segregated bank account, and (ii) WSIs substantial shareholders, where, during the period between November 2, 2023 and December 4, 2023, two companies, each being the associate (as defined under the HKSFO) of Mr. Zhou Kai, an existing HKSFC-approved individual substantial shareholder of WSI and our Chairman of the Board, Director and Chief Technology Officer, as well as a shareholder who owns more than 5% of our issued and outstanding Ordinary Shares as of the date of this prospectus, by acquiring the shares of Waton Corporation Limited, became a substantial shareholder of WSI without the HKSFCs prior approval, due to inadvertent oversight.

Related Party Transactions

• We derived a substantial portion of revenues from Wealth Guardian Investment Limited (WGI), a related party of the Company, which accounted for approximately 39.5% and 81.5% of our total revenues in the fiscal years ended March 31, 2024 and 2023, respectively, and approximately 68.0% and 98.2% of our total revenues for the six months ended September 30, 2024 and 2023, respectively.
• WSI and WTI have outsourced the software licensing and related support services to Shenzhen Jinhui Technology Co., Ltd., a related party of the Company.
• Since the incorporation of our British Virgin Islands holding company, with the exception of funds received for daily operational purposes from Mr. Zhou Kai, our Chairman of the Board, Director, Chief Technology Officer and shareholder who owns more than 5% of our issued and outstanding Ordinary Shares as of the date of this prospectus, no cash flows have occurred between our holding company and our subsidiaries, except for the provision of a capital contribution to WSI by the Company in the amount of US$1 million during the fiscal year ended March 31, 2023 and US$5.1 million in November 2024.

Stakeholder Impact

• The IPO will provide an opportunity for new investors to participate in the company's growth.
• The company's performance will impact its employees, customers, and suppliers.
• The company's ability to comply with regulatory requirements will affect its stakeholders.

Next Steps

• The company intends to apply to have its Ordinary Shares listed on the Nasdaq Capital Market.
• The company intends to use the net proceeds from this offering as follows: approximately 30% of the net proceeds to enhance the functionalities and technicalities of our trading platform APP and the software licensing and related support services, approximately 30% of the net proceeds to launch our asset management business and other new business lines, approximately 20% of the net proceeds to expand our array of investments available for our customers on our trading platform APP, and approximately 20% of the net proceeds for general working capital purposes.

Key Dates

Keywords

IPO, Waton Financial Limited, securities brokerage, financial technology, Hong Kong, Nasdaq, WSI, WTI, related party transactions, regulatory risks